Market Performance

Global equity markets posted mixed returns during April. Australia’s S&P/ASX 200 Accumulation Index posted a positive +0.40% return and outperformed the major European indices with the French CAC40 Index down -0.76%, the German DAX Index down -0.35% and the FTSE up +0.34%. The Nikkei posted a strong +5.34% local currency return and the major US indices, the S&P 500 and the Dow Jones, were up +1.05% and +0.95% respectively.

The yield on 10-year US treasury bonds rose for a second consecutive month, closing May with a yield of 2.12%. Base metals were weaker which resulted in the LME Metals Index closing down -6.9%. Coal prices were also weaker with thermal coal (Newcastle) and coking coal down -9.1% and -1.8% respectively. Iron ore had a better month, posting its second monthly gain (+10.9%). The US dollar gold price was relatively flat and the AUD/USD exchange rate fell to $0.76, down from $0.79 at the end of April.

During May Australia’s Reserve Bank cut the cash rate by a further 25bps to 2.0% and the Federal Government released its second budget. Some of the key spending initiatives in the 2015 budget focused on small business and families. A 1.5% small business tax cut, and larger than expected $20,000 accelerated depreciation policy were aimed at the small business sector, while increased childcare rebate initiatives are positive for the childcare sector. Consumer sentiment posted a strong rise in response to the Federal budget and the RBA rate cut with the sentiment index rising to its highest level since January 2014 and at a level now where optimists outnumber pessimists.

In the US, consumer sentiment pulled back in May and remains below the highs reached in January. Retail sales, a key indicator for the consumer driven US economy, were flat last month and added to evidence of only a moderate rebound in second quarter economic growth. The unemployment rate was little changed, but fell from 5.5% to 5.4% with rounding. Data out of the US housing market was encouraging with housing starts rising to 1.135m in April, the highest level since November 2007.

The second interest rate cut by the RBA this year and a more consumer friendly budget led to the ASX Consumer Discretionary sector outperforming (+1.7%) during May. Other sectors which led performance were Industrials (+5.6%), IT (5.5%), A-REITs (+2.9%) with laggards including Staples (-2.2%), Financial ex-REITs (1.7%) and Telecommunications (-0.2%).

In Mid Cap news Cardno (CDD) downgraded profit expectations with FY15 guidance of A$48-51m, below consensus expectations. Fellow professional services firm WorleyParsons (WOR) also downgraded when it announced it expected earnings for the second half to be approximately 50% of the first half of FY15. M&A activity continued in midcaps. The boards of gold and nickel miners Independence Group (IGO) and Sirius Resources (SIR) announced that IGO had agreed to acquire SIR by way of a scheme of arrangement. Skilled Group (SKE) also announced it has re-entered into discussions with Programmed Group (PRG) regarding a potential merger.

Attribution Analysis for the month ended May 2015

Top 5

Bottom 5

Sims Metal Management

Challenger Financial

JB Hi Fi

Whitehaven Coal

Transfield Services

Aristocrat Leisure

CSR

Caltex

Iluka Resources

ResMed Inc

Fund Performance

In May the Concise Mid Cap Fund returned 1.48%, below the benchmark return of 2.39%. Best performers for the month were Sims Metals (SGM), CSR Ltd (CSR) and JB Hi-Fi (JBH). Detractors from performance were Challenger (CGF), Whitehaven Coal (WHC) and Aristocrat Leisure (ALL).

News on portfolio stocks included;

CSR reported underlying FY15 profit ahead of guidance driven by underlying operational improvements across numerous business segments including building materials, glass and aluminium manufacturing. CSR remains well positioned for continued earnings momentum. The favourable macro backdrop for housing activity and ongoing operational improvements are expected to drive volume growth which together with price increases should result in building products margins continuing to improve.

Resmed (RMD) share price fell 4.6% in May on the back of announcing the trial of the use of adaptive servo-ventilation therapy devices for patients diagnosed with chronic heart failure was found to increase the risk of heart attacks. We see the results of the trial as a temporary setback in that it is likely to only impact sentiment in the very short term rather than impact on our long term investment thesis. RMD remain the market leader in the treatment of obstructive sleep apnea (OSA) and our recent discussions with distributors of RMD product confirmed continued market share gains for RMD in this treatment. It is estimated around 100 million people suffer from OSA globally but only about 10 million are currently under therapy and diagnosis of the untreated is growing at mid to high single digit rates.

Outlook

During May, the investment team visited the USA and Canada meeting with numerous Australian listed companies together with their customers and peers both listed and unlisted. Research was focussed across the Gaming, Housing, Media, Steel , Oil & Gas, Health Care and Consumer industries. Of particular focus was the current market position of each company, the different strategies management is adopting to achieving success and how these strategies differed from their nearest competitors.

From a corporate perspective, the underlying economic environment is not dissimilar to conditions prevailing in the Australian market. Corporates, as they have for several years now remain focussed on reducing costs as top line growth while improving is not delivering rapid earnings growth. Despite the cost of capital at all time lows, corporates are yet to lower their return expectations, making capital spend hard to justify.

The portfolio remains overweight companies with offshore earnings together with domestic consumer facing companies. Pleasingly, we are starting to see evidence of the improving environment for the Australian consumer. The combination of lower petrol prices, lower interest rates and the cycling of a very difficult federal budget from 2014 is providing a vastly improved back drop for earnings growth.

*The Mid Cap Masters Index is a price and accumulation price, free float adjusted index calculated daily for Concise on behalf of S&P. The constituent universe of index is the S&P/ASX 200 excluding the S&P/ASX 50. * The CMCF commended on the 16th of April 2008. The since inception figure is annulaised.

This publication is intended to provide general information only and has been prepared by Concise Asset Management (ABN 62 126 975 282) and (AFS Licence No. 320497), the issuer of the Fund, without taking into account any particular person’s objectives, financial situation or needs. Investors should before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. Your investment is subject to investment risk, including possible delays in repayment and loss of income and capital invested. The repayment of capital or income is not guaranteed by Concise Asset Management. Offers of interests in the Fund are contained in a current Product Disclosure Statement (‘PDS’). A copy of the PDS is available from our website: www.conciseam.com.au or contact Client Services on (03) 9642 8968. You should read the PDS and seek professional advice before making any decision about whether to acquire or continue to hold an investment in the Fund.